Are Resigned Employees Entitled to Last Year's Bonus? Seeking Legal Insights and Fairness

Dear All,

I am thankful to you all for the support given for my post. In our company, resigned employees are asking for a bonus for the previous year they worked with us. However, our management states that employees with a salary of more than 10,000/- per month are not eligible for a bonus as per the Act.

Is it fair to deny like this? What is the legal opinion on eligibility for a bonus as per the amended act?

With regards,
Trisha
HR Professional

Hi Trisha!

You have to consider the following facts:

1. The category of employees - whether workmen, supervisory staff, managers.
2. CTC agreed upon during recruitment. (As you seem to be talking about staff members and middle-level employees, in such cases, the CTC is decided and agreed upon during recruitment. You have to act as per the agreed CTC bifurcated in allowances and payments under statutory provisions like bonus and PF.)
3. Those who have reached the limit prescribed in the bonus act gradually due to increments. (Employees who were earlier receiving a bonus but have now reached above the ceiling should be paid the adjusted amount as some other allowance. This is to maintain their CTC.)

Hope this makes sense. Please provide feedback.

- Hiten

Hi Friend,

Based on your query regarding the Bonus Act, I have provided details below from our President of India.

Centre approves amendment in Bonus Act

Tuesday, October 30, 2007, 10:59 [IST]

New Delhi: The Centre has promulgated an ordinance approving changes in the Payment of Bonus Act, which would make workers drawing up to Rs 10,000 monthly salary eligible for an annual bonus.

President Pratibha Devisingh Patil promulgated the Payment of Bonus (Amendment) Ordinance of 2007 on October 27, as per an official release made here today.

Previously, only those with a monthly salary of up to Rs 3,500 were eligible to claim a bonus.

On October one, the Cabinet had approved the amendment to Section 12 of the Act "to raise the eligibility limit for the payment of the bonus from the salary or wage of Rs 3,500 to Rs 10,000 per month".

This decision would benefit seven percent of the total workforce in the country working in the organized sector.

The payout proposal is largely in line with the recommendations of the 41st session of the Indian Labour Conference (ILC) held in April this year. It is the result of a long-pending demand of the trade unions, particularly by the CPI (M)-affiliated Centre for Indian Trade Unions (CITU).

Source: PTI

I came across an interesting point in your post. It seems that the working staff/employees in a company are not receiving the right bonus percentage. However, in your company, resigned employees demanding a bonus seems to be an idiotic way. How does this happen or is it possible?

Regards,

Saravana
Executive - HR

Thank you very much, Mr. Saravana, for your wonderful information. In our company, we pay bonuses for all employees (only for the existing employees). However, for resigned employees, the management shirks responsibility by stating they were earning Rs.10,000 while working with us.

Nice response from Hiten as well.

With warm regards,

Trisha
HR Professional

Hi Trisha!

I was not clear about your question while posting my reply. Apologize.

As far as the amendment is concerned, you have to check the date of applicability for any amendment. If the past employees are eligible for a bonus as per the provisions applicable/enforced during their employment. Amended provisions cannot be considered for calculating/coverage for cases prior to the amendment.

Hope this time I have got it right. :)

- Hiten

Hi Trisha,

The issue can be categorized into two:

a) For those who are covered under the Payment of Bonus Act.

b) For those who are not covered under the Act.

In the case of employees covered under category (a), you cannot deny them a bonus as they are statutorily eligible to receive the same.

In the case of employees covered under category (b), please check the offer/appointment order issued to them:

Normally, companies show bonus, contributions towards PF, Gratuity, etc., in the CTC to attract talent. If the bonus is shown as part of CTC, you cannot deny them the same. If the departed employees file a claim against the employer, they will succeed.

Moreover, it has to be seen from an HR angle as well. The departing employees should be the real ambassadors of the company, and by denying this amount, what will the company achieve? Any organization that believes in best people practices will not deny the payments due to employees who have left on flimsy grounds.

Hope you will agree.

Thanks & Regards,
Kalyan R

Hi Trisha,

The amendments in the Bonus Act are applicable w.e.f. 1st April '06. Hence, for the financial year 2006-07, first, you will have to check how many employees had their Basic+DA less than or equal to 10,000. Then you will have to check whether they have worked for more than 30 days in that financial year or not. If both conditions have been satisfied, then you will have to give them a bonus for that financial year even if they now cease to be an employee of your organization.

The rationale is that those who have ceased to be your employees now were employees of your organization for a part of that financial year from which the amendment is effective. If your company denies to pay these "eligible employees" a bonus, and if they go to court, then they will win because the court sees these employees as the employees of your company for that period. There are a host of cases for these kinds of situations. Hence, try to give them a bonus if they are eligible for it.

Regards,
Nilendra

Hi,

I have missed out on one point. Hiten has mentioned that amended provisions cannot be considered for calculating/coverage for cases prior to the amendment. When you go through the recent amendment made to the Payment of Bonus Act, you can find that the amendment was given effect for the period 2006-07, which is payable now. In other words, the bonus should be calculated for the earnings made from 1st April 2006 to 31st March 2007. Hence, employees who left even after 31st March 2007 will be entitled to a bonus if they have bonus earnings during 2006-07.

Thanks & Regards,
Kalyan R

Hi Nilendra,

The amendments in the Bonus Act are applicable w.e.f. 1st April '06. Hence, for the financial year 2006-07, first, you will have to check how many employees had their Basic+DA less than or equal to 10,000. Then you will have to check whether they have worked for more than 30 days in that financial year or not. If both conditions have been satisfied, then you will have to give them a bonus for that financial year even if they now cease to be employees of your organization. The rationale is that those who have ceased to be your employees now were employees of your organization for a part of that financial year from which the amendment is effective. If your company denies payment to these "eligible employees" for a bonus, and if they go to court, they will win because the court sees these employees as employees of your company for that period. There are a host of cases for these kinds of situations. Hence, try to give them a bonus if they are eligible for it.

Regards,
Nilendra

Hi Arun K Mishra,

Just to say:
1. If the bonus is part of CTC - Bonus is a fundamental right.
2. If he served for the declared Bonus - whether CTC or not - he has the right to claim.

Regards, Arun K Mishra

Nilendra's answer is perfect and is followed for the payment of a bonus. The current amendment, effective from 01.04.06, states that any eligible employee whose wage is less than or equal to Rs. 10,000/- is eligible for a bonus, whether they are in employment or not.

Regards,
NKT

My previous company had a policy to pay Statutory bonus at 20% for the employees who are covered under the Bonus Act. For the employees who are not covered under the Bonus act, they were receiving the bonus in the form of Ex-gratia for one month or 1/2 month. I left the company on 25th April 08, and I was working as Manager P&A. My basic was 10,000/-, and the total gross was 24,000/-. The company has paid the bonus to all the employees for one month salary. In my case, I was eligible for Statutory Bonus of 8,400/-, and the balance was 15,600/-. Now, the company is refusing to pay the bonus, stating that the company is not liable to pay the bonus to the former employees. I had worked there for more than 6 years. I do not want to spoil my relation with them, but they are completely denying to pay the bonus. Please help me.

Ravi

One of our workers left before the close of the accounting year. How will the bonus settlement be handled during the full and final settlements?

Regards,

Nirupa